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This chapter briefly reviews the history of the EU as it relates to the role of EU institutions in environmental policy-making. It explores EU decision-making institutions and processes and the relationship between the EU and its member states, with particular reference to role and responsibilities in implementing the UNFCCC and the Kyoto Protocol and otherwise addressing climate change. It then reviews EU climate change law and policy to date, focusing on regional policy initiatives. In examining EU governance systems and climate initiatives, it seeks to begin revealing similarities and differences in EU and US political systems as a preface to more in-depth comparisons in Chapters 7 and 8.

This chapter focuses on challenges to the European Union Emissions Trading Scheme (EU ETS) brought before the European Court of Justice (ECJ) and the Court of First Instance (CFI) — the ‘Community Courts’. It commences with a brief account of the prehistory of the EU ETS (Section 2), followed by its legal form and operation (Section 3), before addressing the Courts case law concerning Directive 2003/87/EC (Section 4).

On 29 April 1998, the European Community (EC) and the initial fifteen EU member states signed the Kyoto Protocol. Under the Kyoto Protocol, the EC and the EU member states are committed to jointly reduce their greenhouse gas (GHG) emissions during the period 2008-2012 by a total of 8% below 1990 GHG emissions levels. Soon after signing the Kyoto Protocol, the EU started exploring the potential of an emissions trading scheme to help its member states comply with its GHG emission reduction targets under the Burden Sharing Agreement and the Kyoto Protocol. Despite the Kyoto Protocol not being in force and strong opposition from powerful EU member states — such as Germany and France — the European Union Emissions Trading Scheme (EU ETS) was finally adopted in October 2003 with the objective of reducing EU GHG emissions in a cost-effective and economically efficient manner. This chapter provides historic and legal background information on the EU ETS and puts the EU ETS in the context of overall EU climate policy. It also discusses the cornerstones of the EU ETS and its linkages to the Kyoto Protocol and other emission trading schemes in light of the current amendments to the EU ETS structure for the post-2012 era.

This chapter analyzes the risks and opportunities for private entities in the international climate regime and domestic emissions trading schemes, respectively. It begins with an overview of carbon markets and the ways in which private actors are involved. Section 3 focuses on the risks involved in project-based transactions, which is the type of transactional activity that private actors are most likely to engage in. Section 4 discusses some of the risks that private actors face in the European Union Emissions Trading Scheme (EU ETS). Section 5 looks briefly at the new issues and risks raised by Phase III of the EU ETS, and section 6 concludes the discussion.

This chapter analyzes the environmental and competitiveness implications of introducing border tax adjustments (BTA) and the clean development mechanism (CDM) within the EU Emissions Trading Scheme (ETS). The BTA and CDM have varying impacts on the EU carbon market. The application of BTA within the EU ETS distorts relative export and import prices, thus increasing demand for emission allowances in the regulated sectors and the carbon permit price, but the associated environmental impacts are rather limited. While the overall emission constraints are identical under BTA and CDM, granting access to low-cost abatement options of the CDM to EU ETS participants decreases the domestic abatement of EU member states by shifting parts of it to developing countries, and causes a drop in the EU allowance price.

Since the awarding of the Nobel Peace Prize to Al Gore and the UN's Intergovernmental Panel on Climate Change (IPCC), the issue of climate change has been central to policy agendas. In the UK, policy on climate change occurs at a range of policy levels, and falls under the remit of a number of governmental departments. This chapter discusses a distinctly new focus of policy development, that of environmental policy. It is an area that has had a profound impact on the range of social policy concerns, for example poverty, economic and social globalisation, transport and housing. This chapter outlines some of the key international, European and domestic climate change targets. It also discusses the developments in 2006–07, focusing on recent policy changes. The most notable areas of policy development are the 2006 Climate Change Programme, which sets out the overall government climate change strategy, and contains the main elements such as the European Union Emissions Trading Scheme (EU ETS); the 2007 Energy White Paper Meeting the Energy Challenge, and the 2007 Climate Change Bill. An assessment of the key areas of policy direction is also offered in this chapter including an assessment of the current UK progress which evaluates the capability of the recent policy proposals in addressing climate change.

This paper exploits a detailed and original database to analyse the welfare and efficiency implications of the move to benchmark-based free allocation rules in EU ETS Phase 3(2013-20). It is shown empirically that the new allocation rules will lead to a material improvement of the distributional welfare properties of free allocation, by reducing the scope for windfall profits in non-electricity sectors of the EU ETS. Evidence also suggests that new rules have the potential to improve the economic efficiency of the EU ETS by forcing a larger share of installations to purchase allowances at the margin. However, although harmonised benchmarks help to reduce the scope for competitive distortions arising from differing allocation levels to installations in the same sector, the use of ex-ante output levels to determine allocations still leaves considerable scope for internal market distortions, as illustrated using the example of the cement sector.

This chapter examines the effects of combining an international cap-and-trade scheme with national carbon taxes. We consider a two-country stochastic partial equilibrium model with log-normally distributed uncertainty. The situation is analogous to the situation where European countries impose national carbon taxes in addition to the EU emissions trading. The allowance price in the joint cap-and-trade scheme depends on the tax rate, the relative size of countries and abatement options, the magnitude of uncertainty, and correlation of abatement costs. In most cases, the additional tax will not lead to additional production of the public good beyond the fixed targets. The additional tax results in higher costs of abatement to the country introducing the additional tax, and higher costs overall.

This chapter offers a critique of the EU's climate-change policy, focusing on the 2008 package of measures. It first considers the measures taken so far, notably in respect of the Kyoto Protocol, and its production-based measurement of greenhouse gas emissions. It then turns to the 20-20-20 package and its main components: the EU Emissions Trading Scheme (EU ETS), the renewables targets, and the energy efficiency measures. It then discusses the alternatives — what the EU has not done, but could have done. The notable components are nuclear, significant carbon capture and storage, and a serious R&D programme, as well as a carbon tax with a carbon import component. The chapter concludes with an overall assessment of the EU's climate change policy.